What the War on Iran Means for Supply Chain Risk

2026-03-26 · Source: MIT Sloan Management Review · Field: Business & Management — Corporate Strategy & Leadership, Operations & Process Management, International Business & Trade · Depth: Fundamental Awareness, quick

Summary

Geopolitical events, such as the war in Iran, highlight the critical need for businesses to enhance supply chain resilience by proactively managing geopolitical risk. Wharton's Morris A. Cohen and co-authors, in an MIT Sloan Management Review article, advocate for creating "optionality" within supply chains. This involves implementing structural and process changes to prepare for disruptions, rather than reacting after they occur. Strategies include building inventory buffers through directed buy agreements or customer-managed inventory, and rethinking supply chain structures by developing new supplier relationships in lower-risk regions. Other approaches involve strategic sourcing partnerships for shared risk and priority access, or vertical integration to control critical component supply. These options require significant lead time, often a year or more, to establish assets and relationships, but enable adaptive responses during crises.

Key takeaway

For operations professionals managing global supply chains, the current geopolitical climate necessitates a shift towards proactive risk mitigation. You should prioritize creating optionality by investing in strategies like diversified sourcing, strategic partnerships, or vertical integration. This preparation, though time-consuming, will enable your organization to adapt swiftly and effectively when geopolitical tensions inevitably disrupt operations, safeguarding continuity and market position.

Key insights

Proactive optionality in supply chains is crucial for mitigating geopolitical risk and enhancing crisis preparedness.

Principles

• Geopolitical events demand constant vigilance.
• Proactive preparation beats reactive measures.
• Optionality builds supply chain resilience.

Method

Develop a portfolio of supply chain options by monitoring emerging risks, modeling effects, and implementing structural changes like inventory buffers, diversified sourcing, or vertical integration.

In practice

• Implement directed buy agreements for components.
• Shift to customer-managed inventory models.
• Develop new supplier relationships in stable regions.

Topics

• Geopolitical Risk
• Supply Chain Risk Management
• Horizon Scanning
• Optionality Strategy
• Strategic Sourcing

Best for: Executive, Consultant, Operations Professional

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Editorial summary, takeaway, and curation by AIssential. Original article published by MIT Sloan Management Review.